C-Tracks, the exchange-traded notes subsidiary of Citigroup Inc., expanded its offering by launching an ETN product tied to an index of energy master-limited partnerships, an increasingly crowded category that makes up more than a third of total ETN assets in the US and is currently dominated by the $6.9 billion Alerian MLP (AMLP). The JP Morgan Alerian MLP Index ETN (AMJ) occupies a distant second spot with about $5.6 billion in assets.
Master Limited Partnerships, which trade like listed companies, typically invest in assets ranging from tanks and silos for storage to pipelines and ships for transportation of commodities. Securities issued by dividend-paying MLPs are the most popular among investors as they provide certain tax benefits.
They enjoy immunity from federal income tax liabilities at the entity level because they derive most of their revenues from fees such as transportation and storage rentals, dividends and interests. Data shows total ETN assets have risen by a third this year to $21.5 billion from $16.1 billion a year ago.
The C-Tracks ETN tracks the performance of the Miller/Howard MLP Fundamental Index, a rules-based proprietary index designed to measure the performance of 25 energy master limited partnerships that uses a methodology based upon quantitative fundamental factors of publicly-traded MLPs.
The index provides exposure to a basket of 25 MLPs after considering factors such as distribution growth, distribution coverage and estimated capital expenditures, according to the fund’s prospectus.
C-Track ETNs are unsecured senior debt securities and are subject to the credit risk of Citigroup. The notes are expected to pay quarterly variable coupons based on distributions made by securities in the index.
Investors seeking steady income may consider MLPC as yields are getting compressed again from more traditional fixed-income products after Bernanke decided to delay the much-feared “taper” last week.
MLPC has an annual expense ratio of 0.95 percent that accrues daily.
Disclosure: No holdings